CSL rallies 18% on earnings beat - but is the worst finally behind it?

Biotech giant CSL (ASX: CSL) has had a beleaguered year, with multiple earnings downgrades and a sudden CEO exit that has left the company without a permanent leader for the last six months and counting. Few were expecting much from today's results.

But the numbers came in ahead of expectations, and management pointed to improving trends in the business,  particularly in the Behring plasma division, where early green shoots are emerging after a prolonged period of share loss and pricing pressure. Guidance for roughly 5% underlying NPAT growth in FY27 sent shares up 18% today.

We spoke to Jun Bei Liu, portfolio manager at Ten Cap, who holds the stock with a buy rating. "After five downgrades, is it all in the price?" she asks. "I think the market was waiting for certainty - and based on this result, I think we're there."

Key results - 1H26

• Total revenue down 1% to US$15.8bn vs US$15,423m ests (2% beat)
• Underlying NPATA down 2% to US$3.1bn vs. Macquarie ests of $3.05bn (1.6% beat)
• Reported net loss after tax of US$2.6bn, after US$7.1bn of pre-tax impairments and US$799m of restructuring costs
• Transformation program delivered ~US$176m of cost savings, ahead of target
• FY26 total dividend flat at US$2.92 per share vs. Macquarie ests of US$2.88 per share (1.3% beat)
• Announced a further $1bn on-market share buyback
• FY27 revenue to be in-line with FY26, underlying NPAT growth of approximately 5% vs. consensus at 2% growth

Do you currently hold the stock and what is your rating?

Jun Bei Liu: I do currently hold CSL, and my rating is Buy.

What matters from the results?

Jun Bei Liu: The company delivered revenue and underlying profit that are slightly ahead of their own guidance and analyst expectations - somewhere in the vicinity of 1-2%, so very small. Remember, the company just updated the market around May, so this was somewhat expected, but it is a bit better than expected.

The key metrics here are, of course, revenue and underlying profit, but the individual divisions are very important because this is where analysts read into what happens next year. The key metric is Behring. Behring sales came in about 2% ahead of the previous year. That's the division where it disappointed a lot, and it seems like they have downgraded expectations enough that this is actually the highlight of the result - about 2-4% ahead of analyst expectations. Margin is a little bit lower on that division, but that was expected given some of the challenges they've had.

The other two divisions are also important to look at, though Behring is clearly the most important, with the other two really just swing factors. Seqirus came in somewhat in line, and Vifor is actually okay, but the forward guidance is going to be a lot softer.

So the result itself, in summary, is actually pretty good, given downward-revised expectations, it came in slightly ahead on the Behring side of the business.

On the guidance front, it's again a little bit better than consensus expectations. After about five downgrades in the last 12 months, most analysts had revised their numbers down to flat growth in FY27 - no growth at all - on their Behring and albumin-type numbers. The company actually guided to something like mid single-digit EPS growth. Of course, that's not all organic growth - roughly half comes from lower amortisation and half from actual organic growth. 

What's really important is that they talked to green shoots: Behring growth is potentially looking a bit better, and trends seem to have improved. 

They also guided for Vifor, expecting revenue to decline by around 25% due to generics coming back in. This is well expected. It's a poor outcome, but it's well anticipated by analysts, so it doesn't spark any surprise. The key growth over the next 12 months is going to come from improvement in Behring, albumin, and the like.

How do those outcomes affect the outlook?

Jun Bei Liu: Heading into this result, CSL was looking quite cheap. The stock has clearly performed well over the last month and a half, moving from 13 times FY27 earnings to now 15 times FY27 earnings. 

That still looks very cheap relative to other big defensive companies - like CBA, Wesfarmers, and a lot of those defensives - which are very expensive and don't have much growth either. 

So the valuation looks cheap, but the reason it's cheap is that everyone's worried about earnings. After five downgrades, is it all in the price? And the company doesn't have a CEO, which is a big deal for the market. How do we know it's hitting the bottom?

I think the market was waiting for certainty around earnings being properly rebased. Based on this result, I think it's quite important, because what it shows is that the trend is actually looking a little bit better in the key components. 

I can now more confidently say that next year's expectations look pretty conservative and there's potential for things to get better, though we're not really assuming it.

 It seems like expectations have now been rebased, and on that more realistic base, the valuation is still not that expensive relative to others. And looking into FY28, this company can really grow. 

Of course, we have a new CEO potentially coming in, which brings its own changes, but it just feels like we can now see some improvement in current trends and extrapolate into next year without assuming too much. It gives a lot more confidence in the earnings the company will deliver.

What should investors be paying attention to as the story unfolds?

Jun Bei Liu: I think the biggest upside driver is going to be the immunoglobulin (Ig) business, where operating growth returns to a more industry-level rate. Ig growth in the industry has been in the high single digits - coming down from double digits, but still high single digit at the industry level - whereas CSL has really struggled, losing a bit of share and pricing, and going through a difficult stretch over the last 12 months. So we want to see those early-stage green shoots continue. 

If growth improves to mid or high single digits, in line with the industry, revenue can get uplifted pretty quickly, particularly combined with the cost-out programme they have running. So that's important to watch.

Albumin is also important. People always talk about last-litre economics: when you fractionate blood, you sell the Ig, and whatever albumin is left over is a big byproduct. If you can sell it at a good price, it's essentially pure margin. Over the last 12 months, albumin pricing in China - a big albumin market - has gone through a lot of challenges, as China has been going through hospital system reforms and crackdowns on overpricing and off-label usage. But what we're seeing in near-term trends is stabilisation. It's not getting significantly worse. Watching that trend is important, as it helps with margin.

These two will be very important. On Vifor, there isn't much expectation - things are tough. That was a poor acquisition made many years ago without proper due diligence, and now they just have to wear it. The good thing is a significant decline is already in the expectations.

And of course, the new CEO. 

We kind of need a new CEO who comes in with a proper strategy. CSL has been a successful company for decades, and we don't really want to see a CEO arrive and immediately push for another big acquisition while still dealing with issues from the previous ones. 

These are the key things investors need to look out for, and the market will reward the company with a higher multiple as they work through this checklist.

I'm surprised they don't have a CEO in place yet, given it's been about six months.

Jun Bei Liu: What I've been told in the early days is that they couldn't find anyone - no one wanted to do it. Then I was told it was imminent. But then I was told they'd be holding an investor day later in the year, and apparently they won't have anyone confirmed by then. So it sounds like it's going to be a little further away. I guess they want to find the right person, because the business is fundamentally different now — it's a more mature business.

For anyone to come in, they first need to see the stabilisation of the business; they don't really want to inherit something that's still burning. So I guess that's the challenge. But it sounds like they're actually close to a few candidates — maybe it's in the negotiation stage. Hopefully, in the next six months, we'll see someone come through.

What could you be wrong about?

Jun Bei Liu: I think a new CEO could come in and revise the numbers downward. This company, over the last few years - and particularly the last 12 months - has had a lot of downgrades, significantly worsened by the CEO change and related issues. 

If there's anything hidden in the closet, if the company continues to lose share, and what we just saw in terms of green shoots turns out to be just a blip — that would become very concerning. If they start losing share again, something is fundamentally wrong. We'd previously put the underperformance down to management distraction — the business wasn't managed properly, with various acquisitions and other issues going on. 

But because we're seeing encouraging signs now, even without a CEO, it feels like it should just be tail risk. 

However, if we start seeing share losses again or issues emerging in different areas, we'll become a lot more concerned about whether there's anything fundamentally wrong with the company. That would be quite challenging, because you might then have a new CEO who needs to make some very hard decisions. That's the key thing I'd be worried about.